Sharp Declines Projected for the Rest of 2010, but Nonresidential Construction Recovery Is Possible by Latter Part of 2011
Even with modest improvements in the overall U.S. economy, nonresidential construction spending is expected to decrease by more than 20 percent in 2010 with a marginal increase of 3.1 percent in 2011 in inflation adjusted terms, according to the American Institute of Architects’ semi-annual Consensus Construction Forecast, a survey of the nation’s leading construction forecasters. The forecast indicates that poor conditions remain because of an oversupply of nonresidential facilities in most construction categories, weak demand for space, continuing declines in commercial property values and a strong reluctance to provide credit from real estate lenders.
“There are a number of factors at play here that are contributing to one of the steepest construction downturns in generations,” said AIA Chief Economist Kermit Baker, Ph.D., Hon. AIA. “We have businesses nervous about expanding their facilities, a fragile financial sector, excess commercial space and general unease in the international economy. Things should begin to turn around midway through next year with retail and hotels expected to see the strongest growth, along with health care and amusement and recreation facilities.”
The AIA Consensus Construction Forecast Panel is conducted twice a year with the leading nonresidential construction forecasters in the United States including McGraw Hill Construction, Global Insight, Moody’s economy.com, Reed Business Information and FMI. The purpose of the Consensus Construction Forecast Panel is to project business conditions in the construction industry over the coming 12 to 18 months. The Consensus Construction Forecast Panel has been conducted for 12 years.
Survey of Safety Professionals Finds Shockingly High Incidence of Noncompliance
Nearly all of the safety professionals in a survey released Aug. 11, 2010, said that workers in their organizations had at some point failed to wear the necessary safety equipment while on the job.
An exceedingly high 98 percent of respondents who attended the American Society of Safety Engineers show in Baltimore answered “yes” when asked if they had observed workers not wearing safety equipment when they should have been, according to the survey, which was conducted by Kimberly-Clark Professional, Roswell, Ga.
To make matters worse, 30 percent of these respondents said this had happened on numerous occasions. Given this, it’s not surprising that worker compliance with personal protective equipment protocols was cited as the top workplace safety issue by all survey respondents.
These findings are in keeping with results from surveys of safety professionals, conducted by Kimberly-Clark Professional at the National Safety Council Congress in 2008, 2007 and 2006. Those surveys also found high levels of noncompliance with PPE protocols: 89 percent in 2008, 87 percent in 2007 and 85 percent in 2006.
It’s no wonder then that three-quarters of respondents chose workplace accidents and injuries in response to the question: “What is most likely to keep you up at night?” Potential exposure because of noncompliance with PPE protocols was second, at 13 percent, while fear of a global pandemic and its impact on the work force was a distant third, cited by only 8 percent of respondents.
When it comes to compliance with PPE use protocols, eye protection was found to be the “most challenging” PPE category, according to 42 percent of respondents, a disturbing though not unexpected finding considering that nearly three out of five workers who experienced eye injuries were found not to be wearing eye protection at the time of the accident or were wearing the wrong kind of eye protection for the job, according to the Bureau of Labor Statistics. Add to this the facts that about 2,000 U.S. workers each day have a job-related eye injury that requires medical treatment (based on National Institute of Occupational Safety and Health data) and that thousands are blinded each year from work-related eye injuries that could have been prevented (based on U.S. Department of Labor data), and the magnitude of the problem becomes clear.
The next highest category for noncompliance was hearing protection, also disturbing since occupational noise-induced hearing loss is 100 percent preventable when proper preventative measures are implemented. It was followed by gloves and head protection.
When asked what they had done or intended to do to improve compliance levels, these safety professionals’ top choice was to improve existing education and training programs. This was followed by increased monitoring of employees, purchasing more comfortable PPE, tying compliance to individual performance evaluations, purchasing more stylish PPE and developing incentive programs to encourage greater PPE compliance.
Immigration Concern Spikes in Congress
Immigration has risen again to the top of the list of issues eliciting citizen engagement with Congress in July. The issue has dominated throughout the past three months, ranking number one in May and coming in third for June.
Data from the Congressional Conversation Index shows that concern over immigration has risen by roughly 53 percent, presumably due to continuing debate over Arizona’s controversial immigration law (SB107). Representatives received an average of 145 recorded emails, letters or calls regarding the issue throughout the month of July.
The CCI is a monthly compilation, put together by Washington, D.C.–based firms Adfero Group and Fireside 21, of the top issues Congress hears about from their constituents. In June, energy and the environment topped the charts due to the after-effects of the Deepwater Horizon oil spill. Numbers decreased dramatically when BP officials appeared to have contained the spill. In July, the top issues in the CCI were (1) immigration (2) health care (3) abortion and women’s issues (4) tax (5) energy (6) financial services (7) labor (8) animals (9) general government issues (10) foreign affairs.
Negative Conditions Persist in Architecture Billings Index
There was a negligible increase in the Architecture Billings Index in June. An indicator of construction activity, the ABI reflects the approximate nine to 12 month lag time between architecture billings and construction spending. The American Institute of Architects reported the June ABI rating was 46.0, up slightly from a reading of 45.8 the previous month. This score reflects a continued decline in demand for design services (any score above 50 indicates an increase in billings). The new projects inquiry index increased from 55.5 to 57.7.
“The steep decline in nonresidential property values has slowed investment in new facilities,” said AIA Chief Economist Kermit Baker, Ph.D., Hon. AIA. “Conditions at architecture firms continue to remain very soft, but we’re optimistic that they will improve before the end of the year.”
Key June ABI highlights include the following:
o Regional averages: Northeast (47.7), South (46.7), Midwest (46.3), West (43.6).
o Sector index breakdown: commercial / industrial (50.6), multifamily residential (46.5).
o Institutional (45.0), mixed practice (44.7).
o Project inquiries index: 57.7.
New-Home Sales Bounce Back in June
Coming off an historic low in May, sales of newly built, single-family homes rose 23.6 percent to a seasonally adjusted annual rate of 330,000 units in June, according to U.S. Commerce Department data released July 26.
“Today’s numbers are an encouraging sign that new-home sales are coming back from an expected slow period that followed the expiration of the home buyer tax credit program,” said Bob Jones, chairman of the National Association of Home Builders and a home builder from Bloomfield Hills, Mich. “While we still have quite a way to go on the path to recovery, it’s good to see that we are headed in the right direction.”
“It’s worth noting that some of the new-home sales in June were due to move-up buyers who were able to sell their previous home to a tax-credit-eligible buyer while that program was active,” said NAHB Chief Economist David Crowe. “Also, while sales activity is still far from robust, it has picked up some momentum as positive factors such as historic low mortgage rates, great selection and attractive prices help draw potential home buyers back to the market. We anticipate that this momentum will continue along with a gradually improving economy, although other factors such as a critical lack of production financing remain a drag on housing’s recovery.”
Sales of new homes rose strongly in three out of four regions in June. The largest percentage increase was the Northeast’s 46.4 percent gain, followed by a 33.1 percent gain in the South and a 20.5 percent gain in the Midwest. The West was the only region where new-home sales did not improve in June, instead falling 6.6 percent to a new record low.
Meanwhile, the nationwide inventory of new homes for sale declined to 210,000 in June, the thinnest it has been since September of 1968. This amounts to a 7.6 months’ supply at the current sales pace.
Remodeling Dips but Shows Signs of Stabilization
The remodeling market slid backward during the second quarter, according to the July 29 National Association of Home Builders’ Remodeling Market Index. The RMI (combining current and future market indicators) sunk to 40.7 from 47.9 in the first quarter. Current market conditions slid back to 42.6 from 44.5 in the previous quarter. Future indicators of remodeling business declined to 38.9 from 43.1 in the last quarter.
The RMI measures market demand for current and future residential remodeling projects based on remodelers’ perceptions and indicators of future activity like calls for bids. Any number below 50 indicates that more remodelers say market conditions are getting worse than report improving conditions. The RMI has been running below 50 since the final quarter of 2005 and during the last quarter approached break even again.
“Remodelers are suffering from weak consumer confidence and constricted credit lines,” said NAHB Remodelers Chairman Donna Shirey, CGR, CAPS, CGP, a remodeler from Issaquah, Wash. “Homeowners are delaying remodeling projects because of economic uncertainty.”
The current conditions indices for the remodeling market worsened in two regions: Northeast 41.4 (from 46.6 in the first quarter); and South 42.4 (from 44.1). However, current remodeling indices improved in the Midwest 44.7 (from 43.8) and the West 42.0 (from 34.8). Major additions fell to 44.2 (from 48.0), as did minor additions to 45.8 (from 47.3). Maintenance and repair indicators showed a milder decline, from 37.3 to 36.6.
All the indices for future remodeling business declined. Calls for bids dropped to 46.2 (from 49.4). Work committed for the next three months slumped to 27.9 (from 29.9). The backlog of remodeling jobs dipped to 37.7 (from 44.8), and appointments for proposals slid to 43.7 (from 48.1).
Responding to additional special questions in the survey, remodelers also reported on the changing composition of remodeling projects. Sixty-one percent said bathroom remodeling was one of their most common projects during the first half of 2010. Kitchen remodeling came next with 52 percent. In previous years, kitchen remodeling was reported as the most common activity by more than 70 percent of remodeler respondents.
In general, comparisons to historical data show that larger remodeling projects (such as room additions, whole house remodeling, bathroom additions and second story additions) have been on the decline for several years. Smaller remodeling jobs (such as window and door replacements) have remained relatively steady, or, in the case of handyman services, actually increased. For example, only 29 percent of remodelers reported that room additions were a common activity in 2010, compared to 70 percent in 2004. Conversely, none of the professional remodelers responding to the survey reported that it was common for their companies to perform handyman services in 2004, while 33 percent of remodelers were regularly providing handyman work in the first half of 2010.
“While remodelers are continuing to struggle, we expect the rest of 2010 to be a period of stabilization for remodeling, with the first stages of recovery emerging by the end of the year, followed by a more robust recovery beginning early next year,” said NAHB Chief Economist David Crowe. “For now, professional remodelers are taking on smaller projects and working to find consumers willing to spend money despite the economic uncertainty.”
For more information about remodeling, visit www.nahb.org/remodel.
June Construction Slips 3 Percent
New construction starts in June dropped 3 percent to a seasonally adjusted annual rate of $385.7 billion, according to McGraw-Hill Construction, a division of The McGraw-Hill Companies. Declines were reported for two of construction’s three main sectors: housing and nonbuilding construction. Meanwhile, nonresidential building advanced in June, continuing to show some improvement after extremely weak activity earlier in the year. During the first six months of 2010, total construction starts on an unadjusted basis came in at $199.6 billion, down 4 percent from the same period a year ago.
The June data lowered the Dodge Index to 82 (2000=100), compared to a revised 84 for May. The Dodge Index had witnessed an extended decline from mid-2006 through early 2009, and since then it has hovered in the range of 82 to 95.
“The pattern of construction starts can still be viewed as showing low-level stability, although barely, as June came in at the bottom of the recent range of activity,” stated Robert A. Murray, vice president of economic affairs for McGraw-Hill Construction. “The improvement shown by single-family housing over the past year has stalled, at least for the present. With regard to nonbuilding construction, the dollar amount of new electric utility projects has retreated, and it appears that the lift provided to transportation public works from the stimulus funding is leveling off. For nonresidential building, the recent pickup in May and now June suggests that the worst of this sector’s decline may be over. However, renewed expansion for nonresidential building on a sustained basis is not likely in the near term, given such ongoing constraints as tight bank lending, eroding state and local budgets, and sluggish employment growth.”
Residential building in June fell 5 percent to $118.9 billion (annual rate), with single-family housing receding 1 percent while multifamily housing dropped 24 percent. From the spring of 2009 through the first quarter of this year, single-family housing had shown steady improvement, but during the second quarter activity retreated.
Murray noted, “Some of the improvement for single-family housing may have been accelerated with the homebuyer tax credits, and their expiration has led to a near-term pause in what is still believed to be an upward trend for homebuilding.”
The decline for multifamily housing in June followed four straight months of gains after very depressed contracting at the outset of 2010. The largest multifamily project reported as a June start was the $60 million apartment portion of a $90 million mixed-use building in Washington, D.C. For the first six months of 2010, residential building was up 23 percent in dollar terms relative to 2009, with single-family housing climbing 27 percent while multifamily housing edged up 2 percent. The year-to-date increase for multifamily housing was due mostly to a greater volume of renovation work.
Nonresidential building in June grew 9 percent to $156.3 billion (annual rate). On the institutional side of the nonresidential market, healthcare facilities jumped 59 percent, boosted by the June start of five projects valued each in excess of $100 million, located in Kansas ($324 million), California ($200 million), Texas ($176 million), Kentucky ($121 million) and New Jersey ($120 million).
Murray indicated, “After the steep 33 percent correction in 2009, the healthcare facilities category is strengthening once again in 2010, helped by healthcare chains bringing deferred projects to groundbreaking, as well as the start of more government-owned hospitals.”
The amusement-related category also had a strong June, surging 85 percent, with the boost coming from the start of a $500 million renovation project at Madison Square Garden in New York, N.Y. The educational building category lost momentum, falling 7 percent, with the decline cushioned by the start of such large projects as a $177 million medical research laboratory in Worcester, Mass., and a $125 million high school addition and renovation in Mastic Beach, N.Y. Also slipping back were transportation terminals, down 5 percent; and the public buildings category, down 12 percent.
On the commercial side of the nonresidential market, office construction in June dropped a modest 4 percent. Large office projects that reached groundbreaking included a $70 million data center in Cheyenne, Wyo., for the National Center for Atmospheric Research, a $62 million data center in Lakewood, Colo., for the U.S. General Services Administration, and a $54 million upgrade to a federal office building in Chicago. More substantial declines were reported for stores and shopping centers, down 19 percent; and warehouses, down 26 percent. The depressed hotel category was able to report a 61 percent increase in June, coming as the result of a $172 million post-flood restoration project at the Opryland Resort Hotel in Nashville, Tenn. Also reporting a gain was the manufacturing plant category, climbing 55 percent with the lift coming from the start of a $150 million sugar refinery in Louisiana.
During the first six months of 2010, nonresidential building was down 15 percent from the same period a year ago. By major segment, the institutional categories fell a comparatively modest 5 percent, while more sizeable declines were reported for commercial buildings, down 29 percent; and manufacturing buildings, down 54 percent.
The 4 percent shortfall for total construction starts at the U.S. level during the first six months of 2010 compared to last year reflected a varied performance by region. Greater year-to-date activity was reported in the Northeast, up 5 percent; and the South Central, up 2 percent. Diminished year-to-date activity was reported in the South Atlantic, down 6 percent; and the West and Midwest, each down 8 percent.
People & Companies in the News
Demand Products, headquartered in Alpharetta, Ga., has expanded its coverage of representatives. In North Carolina and South Carolina, Demand now has the BGB Group with Britt Rogers Jr., Greg Burn and Brian Wagner. The three have 47 years of combined experience and 15 years of established relationships in the Carolinas.
Chuck Dougherty Jr. and Chuck Dougherty Sr. have expanded their sales territory from Pennsylvania, Maryland, Delaware, New York and New Jersey and added Virginia and West Virginia.
Joe Torres has expanded his territory of Ohio to include Indiana.
Dow Building & Construction, a business group within Dow’s Advanced Materials Division located in Midland, Mich., has named Carol Eicher business group vice president. Eicher replaces Torsten Kraef, who has been named vice president for Dow Polyurethanes.
Eicher was formerly business director for Dow Performance Monomers. Prior to its acquisition by Dow, she spent 10 years at the former Rohm & Haas, where she held multiple vice president and business director roles spanning the Electronic Materials, Monomers, and Specialty Materials business groups. She brings more than 30 years of industry experience to her new role.
Robert Scoble has been named president and chief operating officer for Hyde Tools, Inc., Southbridge, Mass. Scoble succeeds Richard M. (Rick) Clemence, who will lead the Hyde Group as chief executive officer.
After more than 20 years of leadership in other privately held companies, Scoble joined the Hyde Group family of companies in 2005 as vice president of sales and marketing for Hyde Tools. In 2009 he was named executive vice president and chief operating officer.
Over the last five years, Scoble has been credited with strengthening the HYDE® brand, recruiting significant new leadership and creating a new global sales and marketing team for the company. He and his staff also have substantially increased the company’s share of revenue derived from innovative new products. As president, he expects to continue his focus on HYDE® brand growth and to work closely with Hyde’s Canadian counterpart, A. Richard Tools.
Clemence will now focus on growing the value of the Hyde Group, the umbrella organization that includes Hyde Tools, Hyde Industrial Blade Solutions and A. Richard Tools of Berthierville, Quebec.
Topcon Corporation announces the promotion of Ray O’Connor to managing executive officer. O’Connor is president and CEO of Topcon Positioning Systems, based in Livermore, Calif., and chairman of the board of Topcon Europe Positioning. He will continue to fill these and other positions within the corporation.
In addition to leading Topcon’s efforts in its core markets of construction, surveying and civil engineering, O’Connor has also provided the guidance for Topcon’s entry into the global precision agricultural industry, mobile mapping, telematics, high-speed precision earthmoving and OEM expansion. O’Connor has been instrumental in the successful consolidation of Topcon and Sokkia in the survey market.
O’Connor joined Topcon in 1993 as the North America sales manager for construction lasers. By 1995, he had guided the company through the acquisition of Advance Grade Technologies and formed a separate division, Topcon Laser Systems. In 2000, he led Topcon’s acquisition of JPS to bring Topcon the basis of its GPS technologies. Then in 2001, he managed the formations of Topcon Positioning Systems that consolidated all of Topcon’s construction and survey business in the Americas.
In 2002 he was promoted to president of TPS, and was appointed chairman of the board of Topcon Europe Positioning in 2005. He was a Toshiba Corporation businessperson of the year in 2005, the first person of non-Japanese descent to receive the honor.
Currently, under O’Connor’s direction, TPS has more than 850 employees on five continents.
Products in the News
Sto Corp., Atlanta, was the only entity to fully pass both air and moisture testing during a BEC/BSA 2010 Air Barrier Design Challenge held in late May.
Hosted by Architectural Testing Inc. in Chelmsford, Mass., 10 teams of practicing design and construction professionals assembled 4-foot by 8-foot building envelope mock-up panels with a variety of membrane and fluid-applied air and moisture barrier systems. The Sto Team used StoGuard, which was the only product tested that did not leak in both the air and water tests, including at the sensitive material joints or at screw holes.
The two testing methods used in the challenge were the ASTM E 783 (field test for air leakage) and the ASTM E 1105 (field test for moisture leakage).
